Corporate-Sponsored Foundations and Earnings Management

Posted: 17 Jan 2006

See all articles by Christine Petrovits

Christine Petrovits

College of William and Mary - Mason School of Business

Abstract

This study examines the strategic use of corporate philanthropy programs to achieve financial reporting objectives. Corporate-sponsored foundations allow managers to maintain stable levels of giving to charitable causes while providing substantial discretion as to the amount of contribution expense recorded on the income statement in any given period. I find that firms reporting small earnings increases make income-increasing discretionary foundation funding choices. This result is associated with firms that have strong equity market incentives to manage earnings. The evidence presented in this paper is consistent with firms using their charitable foundations as off-balance sheet reserves.

Keywords: corporate philanthropy, earnings management, private foundations, consecutive earnings increases

Suggested Citation

Petrovits, Christine, Corporate-Sponsored Foundations and Earnings Management. Journal of Accounting & Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=875021

Christine Petrovits (Contact Author)

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

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